One of the key features of the Union Budget for FY22, that needs to be noted by the investors, is the proposal to implement some important reforms in the power sector. The finance minister mentioned the following in her speech on this subject:
“61. The distribution companies across the country are
monopolies, either government or private. There is a need to provide choice to
consumers by promoting competition. A framework will be put in place to give
consumers alternatives to choose from among more than one Distribution Company.
62. The viability of Distribution Companies is a serious
concern. A revamped reforms-based result-linked power distribution sector
scheme will be launched with an outlay of Rs3,05,984 crores over 5 years. The
scheme will provide assistance to DISCOMS for Infrastructure creation including
pre-paid smart metering and feeder separation, upgradation of systems, etc.,
tied to financial improvements.”
Budgetary outlay for the sector has also been enhanced by 22%
from FY21RE. The increase is on account of higher allocation for:
(i) Central power
generation companies to add 2 to 2.5GW thermal capacity and some hydroelectric
projects in HP and J&K;
(ii) Integrated Power Development Scheme (IPDS), which aims to augment T&D infrastructure in urban areas;
(iii) Smart Grids Scheme under 'National
Smart Grid Mission' to set up an electrical grid with automation,
communication, and IT systems to enhance T&D infrastructure, aiding loss
reduction
(iv) Setting up a
separate central transmission utility (CTU) for unbundling of planning and
execution arms of Power Grid Corporation of India Ltd.
As per Crisil commentary on Budget, the Rs3.06trn outlay for
power sector for a period of five years, may fund discoms over and above the Rs
1.2trn provided under Atamnirbhar Bharat package in FY21. As per CRISIL’s
analysis, the combined ~Rs 4.2trn totals up to about double their incremental
debt requirement of ~Rs 2trn between fiscals 2020 and 2023, and is close to the
full incremental debt requirement till FY25. Besides, Rural Electrification
Corporation Ltd (REC) is also set to raise ~69% higher funds through IEBR in
fiscal 2022 over revise estimates of fiscal 2021.
The Electricity (Amendment) Bill to be tabled in the current
Parliament Session, shall further strengthen the reform push to improve the
financial health of the sector. In particular implementation of smart metering
to give effect to DBT of power subsidies shall be a key development to watch.
Option to move from public distribution companies to private distribution
companies or from one private distribution company to the another may benefit
the efficient private sector distributors in medium term.
Incidentally, last week global rating agency Moody’s upgraded
India’s power sector outlook to “stable” from previously “negative”. The power
demand in India recorded a new high in January surpassing all previous records.
